Ducks part of NHL's Southern cooking

Oct. 7, 2013

Updated 3:36 p.m.

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NHL commissioner Gary Bettman, center at podium, speaks to the media during last month to announce the outdoor hockey game to be played at Dodger Stadium between the Ducks and Kings on Jan. 25, 2014. While some question the success of the NHL's Southern strategy, pointing to multi-million dollar losses racked up by teams like Phoenix, Bettman insists that the sport is in the Southern markets for the long haul. DAMIAN DOVARGANES, AP

NHL commissioner Gary Bettman, center at podium, speaks to the media during last month to announce the outdoor hockey game to be played at Dodger Stadium between the Ducks and Kings on Jan. 25, 2014. While some question the success of the NHL's Southern strategy, pointing to multi-million dollar losses racked up by teams like Phoenix, Bettman insists that the sport is in the Southern markets for the long haul. DAMIAN DOVARGANES, AP

LOS ANGELES – NHL commissioner Gary Bettman stood near the right field line of an empty Dodger Stadium last month, behind him a ring of banners stretched from first to third base marking the outline of a hockey rink.

The scene reminded Bettman, a native of Queens, of another New Yorker who followed his vision West more than a half-century earlier, in the process dramatically extending the landscape of North American professional sports.

Walter O’Malley, Bettman said referring to the Dodgers owner who moved the club from Brooklyn, had “the courage to cross a frontier, to take a risk to create a new sports tradition, to have in effect a new frontier.”

The 2013-14 NHL season marks the 20th anniversary of the Ducks entering the league and the 25th anniversary of the Wayne Gretzky trade, two pivotal moments in the NHL’s quarter-century quest emulate O’Malley and conquer its own “new frontier;” the NHL’s “Southern Strategy” to extend the league’s footprint to California and across the American Sun Belt and into other non-traditional hockey markets.

Yet as NHL officials sized up Dodger Stadium for January’s Winter Classic between the Ducks and Kings, former Kings owner Bruce McNall, an early driving force and visionary behind the Southern Strategy, the man who lured Gretzky to Hollywood and Disney to the NHL, admitted the league’s plan has failed.

“Gretzky and I were actually talking about this the other day,” said McNall, the former chairman of the NHL board of governors. “And I said we may have made a mistake in thinking our personal love of the game and the popularity of Wayne Gretzky was enough for the (NHL) to be transcendent. Because the league hasn’t been transcendent. In the hindsight the popularity of hockey has not been as wide spread as I hoped.

“I mean Sidney Crosby,” McNall continued, referring to Pittsburgh’s Stanley Cup and Olympic hero, “could walk into Staples Center or the (Honda Center) in street clothes and nobody would know who he was.”

McNall is hardly alone in acknowledging the NHL’s plans have gone south in more ways than one.

While the last decade has seen Stanley Cup triumphs in Anaheim, Los Angeles, Tampa Bay and Carolina, it has also produced an NHL Southern landscape littered with bankrupt or unstable franchises playing on frozen ponds of red ink. With seven of the NHL’s so-called Southern franchises losing money during the 2011-12 season, the league’s last full season, former NHL club executives, economists and sports consultants maintain that the league’s future – and financial salvation – lies not in the American Sun Belt but in returning to the game’s Canadian roots and markets in the Northern United States.

“Let’s face it, it hasn’t worked,” Richard Powers, a senior lecturer at the University of Toronto’s Rotman School of Management, said of the Southern Strategy. “It’s failed in many respects. The NHL just hasn’t gained as much popularity as (league officials) had hoped. I saw some study recently that the interest in the NHL ranked behind cattle shows in the U.S.”

The answer, analysts and former league executives maintain, is to pull the plug on the Southern Strategy and relocate floundering franchises to where the game is popular: Canadian hockey hotbeds like Quebec City and the Toronto suburbs and northern U.S. markets like Portland, Seattle and Milwaukee. “The NHL in 10 years should be a northern centric league,” said former Dallas Stars president Michael J. Cramer. “And there’s nothing wrong with that.”

“Under Bettman, I don’t see that happening,” Powers said. “It would be admitting he was wrong and that’s never going to happen.”

Noll and the others agree on this much: The continued pursuit of a failed Southern Strategy will only lead to even more red ink, league instability and a further widening of the gap between the NHL’s have’s and have not’s that is already the greatest in North American professional sports. Without a U.S. television contract more in-line with those for the NFL, NBA and Major League Soccer, the costs cut by the Collective Bargaining Agreement between the league and the NHL Player’s Association earlier this year are still not enough to make most Sun Belt franchises (as well as some northern clubs like Columbus) financially viable.

“I don’t think it was a mistake to embark on this strategy,” Noll said. “It is a mistake to continue with it.”

Bettman, having recently secured new ownership for Florida and league operated Phoenix, of course, insists there is nothing wrong with the NHL’s southern exposure.

“It’s been tremendous when you look at the success teams have had whether or not it’s two Stanley Cup championships recently in Southern California but more importantly look at the attendance of the clubs and look at what’s happening at the grass roots level,” Bettman said. “I think I read an article recently that the number of high school teams in Orange County is doubling from 14 to 28. That tells you so much about the growth of the game at all levels. The fact that we have players getting drafted in the first round. Hockey has never been stronger and it continues to grow.”

“Phoenix isn’t in trouble at all. They have new ownership. That was a problem of a different sort. It’s a testament to the fan-base in Arizona that the Coyotes are still there. You look at the strong ownership in Florida and Tampa Bay. You look at the Stanley Cup in Carolina. A couple of Stanley Cups in Dallas (sic). If you look at the spectrum of everything that has gone on it tells you that hockey doing very well in the so-called non-traditional climates.”

The NHL has had a presence in the American Sun Belt since 1967 when the Kings and the Bay Area California Seals were part of the league’s doubling in size from its Original Six franchises. But it wasn’t until the late ‘80s, especially following the success of the Gretzky trade on and off the ice, that the NHL came to view non-traditional U.S. from Orange County to South Florida as the league’s new frontier and the key to attracting a major network television contract, not to mention eight-figure expansion fees.

“Everybody knew we needed to expand, I knew we needed to expand in order to get a national television deal,” McNall, the chairman of the NHL board of governors at the time. “We had to expand the league’s national footprint.”

A league paper titled “A Vision for the Nineties” was the blueprint for the league’s expansion. San Jose joined the league in 1991, followed by Tampa Bay a year later. The NHL and its plans received a boost of credibility when McNall convinced Disney to launch the Ducks in 1993, Florida joining the league the same season with Minnesota relocating to Dallas. Nashville was added in 1998, Atlanta in 1999. By the turn of the century there were also franchises in Columbus and Carolina (as well as an expansion franchise in Minnesota). By that time the NHL’s national footprint also included teams in Colorado and Phoenix after Quebec and Winnipeg, respectively relocated, driven out of Canada by outdated arenas and a weak Canadian dollar.

“It was a good idea that didn’t work,” Noll said. “Clearly it didn’t.”

Seven Sun Belt franchises – Anaheim, San Jose, Tampa Bay, Florida, Nashville, Carolina, Phoenix – lost a combined $70.2 million in operating income during the 2011-12 season, according to Forbes. The 2011-12 season was the seventh consecutive campaign in which Nashville, Florida, Phoenix and Columbus (as well as the New York Islanders and St. Louis) lost money. Carolina lost money in all but one season during the seven-season stretch, San Jose all but two. Atlanta lost $130 million in the six seasons before the franchise relocated to Winnipeg for the 2011-12 season, according to documents filed in Fulton County (Ga.) Superior Court.

Phoenix lost $62.9 million in operating revenue over an 11-month period in 2008 and 2009, according to documents filed in U.S. Bankruptcy Court in Arizona. The Coyotes losses came despite receiving $13.5 million in revenue sharing funds from the NHL and another $8.1 million from the league in broadcast and merchandising revenue, according to bankruptcy reports.

The Ducks have posted losses for four consecutive seasons, finishing 2011-12 with $10.8 million in operating losses, according to Forbes. Ducks owner Henry Samueli recently told the Register that losses for last season were “in the same general ballpark as they have been.”

“It’s always more challenging in the non-traditional markets,” Samueli acknowledged. “So you have to build that fan base since it’s not genetic as it is in Canada. It is more of a challenge. But again, hopefully with the new CBA, that’ll give more opportunity for the non-traditional markets to grow and turn the corner. I’m hopeful that we’ll have a better go of it in the future.”

But economists and former league executives view Samueli’s optimism as misguided, arguing that the new collective bargaining agreement does not cut costs enough to offset losses or make up for the lack of centralized income from a television contract more in line with those for the NFL, NBA and Major League Baseball. Under the 10-year CBA the league and players will split revenues 50/50 and the deal calls a $64.3 million salary cap with a $44 million floor. The NFL is in the midst of an 11-year TV deal worth $27 billion. The NBA has a TV package that runs through the 2015-16 season worth $930 million per year. The MLB teams will receive an average of $51.7 million per team next season. By comparison a 10-year deal with NBC Universal that runs through the 2020-21 season that the NHL called “landmark” is worth $2 billion.

Without the kind of revenue teams in other pro sports receive from television, NHL franchises rely heavily on gate receipts and other local revenues. This has created a disparity between the league’s most financially successful franchises and those on the bottom economically that Noll calls the widest in North American pro sports. “The disparity in local revenue is big in all sports but in other sports the central revenue cancels that out,” Noll said.

Tampa Bay sold 99.2 percent of its available home tickets during the 2011-12 season. Yet because many of those tickets were sold at reduced prices the Lightning had only $23 million in reported receipts, compared to $88 million for Toronto. In 2011-2012, the league’s three most financially successful franchises, Toronto, Montreal and Vancouver, generated nearly as much revenue ($512 million) as Anaheim, Tampa Bay, Florida, Nashville, Carolina and Phoenix combined ($515 million) combined. Those three Canadian franchises combined for $244 million in gate receipts revenues, more than Dallas, Anaheim, Tampa Bay, Florida, Nashville, Carolina, Columbus, Phoenix and St. Louis combined ($241 million).

“The losses in the Sun Belt are so large you’re never going to save enough by just cutting costs,” Noll said. “It’s just not in the cards.”

Many on both sides of the border insist the NHL would have better luck by relocating troubled franchises in Canada. They point to the success of Winnipeg, where the Atlanta franchise relocated before to the 2011-12 season. The Jets sold 13,000 season tickets within hours and the club finished their first season with $105 million in revenue, $53 million in gate receipts.

“What Winnipeg shows is that small (Canadian) markets can support a team,” Powers said.

So if it works in Winnipeg why not Quebec City or the Greater Toronto Area?

Quebec City is viewed by most as the most likely landing spot for the next failed U.S. franchise. The New Quebec City Amphitheatre, a $400 million, 18,482-seat arena built largely with public funds and operated by Quebecor, a Montreal media company, is schedule to open in 2015. Bids by Quebec and other Canadian cities are boosted by a strengthened Canadian dollar. “It can happen,” Powers said. “We know you can be successful in a place like Quebec City.”

Theirs is little doubt that a franchise in the Toronto suburbs would also be successful. The GTA Centre, a 20,000-seat arena, has been proposed in Markham, a Toronto suburb. But bids to land a team in Markham or other cities in Southern Ontario like Hamilton still face a major obstacle. “There’s no question that the GTA could support another NHL team,” Powers said. “But you would have to fight with the Toronto Maple Leafs” for approval to move into the NHL’s most lucrative market. Bettman has successfully undermined attempts by Hamilton entrepreneur Jim Balsillie to buy and relocate Nashville and later Phoenix to Hamilton.

Some in the Canadian media have taken to calling Phoenix “Canada’s team,” a reference to the subsidies it received through revenue sharing and the NHL’s contract with the Canadian Broadcasting Casting’s Hockey Night In Canada, and the likelihood franchise will ultimately end up north of the border. Despite Bettman and the league’s upbeat public stance on the sale of the Coyotes to Renaissance Sports and Entertainment, the team’s lease has done nothing to shake talk of relocation. The Coyotes can break the lease after five yeas if the franchise has posted $50 million in losses. Neither has it discouraged those who see franchises popping up across the Canadian frontier. A 2010 study by the Mowat Centre at the University of Toronto titled “The Economics of the NHL: Why Canada Can Support 12 Teams” estimated that a Canadian franchise would generate $23 million per year in extra gate revenue than a team in a similar sized American market.

While not going as far as seeing 12 teams in Canada, many like former Dallas president Cramer see an expanded core of Canadian and northern U.S. franchises, not the Sun Belt, as critical if the NHL is going to thrive.

“The NHL needs to return its natural base,” said Cramer, director of the Texas Program In Sports and Media at the University of Texas. “I would pull out of Florida. Phoenix would be gone. Columbus, Nashville gone. How do you make this league flourish? You have to return to your natural base, cut salaries and realize that you’re not the NFL, NBA or Major League Baseball. And that’s OK. It doesn’t take away from the quality of the game.”

Bettman and other NHL officials have dismissed recent reports that the league has already had talks with officials in Quebec City or Seattle. “There’s always a talk,” Bettman said. “It’s great to know that there’s lots of interests in having teams in places where there aren’t. But as we stand here today it’s nothing we’re pursing right now in any sort of organized way. We listen to the expressions of interests and they’re gratifying but that’s all it is right now.”

As Bettman walked around Dodger Stadium, signs of sunburn beginning to show on his cheeks, it was clear he had no plans to give up on the empire the NHL had staked on the beachheads of California and Florida and across the American desert and South, no matter how unstable it is.

NHL executives, Noll said laughing, “have ‘an ostrich with its head in the sand’ problem.”

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